Deduction of graduate school tuition expenses on Schedule C for 1099 income?

Okay, here is the situation. Thanks in advance for any help.

Client received an IRS notice saying they owe an additional tax of $2913 for an Americorps scholarship of $9450, for which a 1099 was issued. The $9450 scholarship was in box 3 (other income) of the

1099. The client never actually saw the money, it went straight to their graduate school bursar and was applied to their tuition bill.

The IRS website specifically states that this income is taxable and must be entered on line 21 of the Form 1040 and I understand that. The client is already deducting $1570 of additional tuition they paid on line 34 of the Form 1040. I am wondering if, because it is 1099 income, we can respond to the notice with a Schedule C prepared, that shows $9450 in income, and $9450 of tuition deducted, and also amend the Form 1040 to take out the $1570 tuition so there is no double- dipping of any kind. This will raise their total taxable income by $1570, which will result in an increase to their tax but it will be less than the notice amount. Can we do this?

Thanks again.

Chris A Johnson, EA

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Reply to
caj111
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No. Being a graduate student is not a trade or business, so Schedule C would be inappropriate.

Reply to
Mark Bole

I agree and I have a question for the OP:

We saw a couple of Americorps volunteers this past tax season. They both had received Segal Education awards equal to $5550. They told us that the amount of the scholarship award is capped equal to the maximum Pell Grant. So... where does this $9450 award come from?

Reply to
Alan

Who the h... prepared the original return? The last time I prepared a tax return was 33+ years ago and then only because I was trying to convince a Pretty Young Thing that I was a good deal. Even I know the General Rule is "Scholarships are taxable".

Whether or not any part of this scholarship is deductible or subject to offset is based on details that have not been shared.

Is the client a part-time grad student? Is the graduate education related to the client's profession? Better yet what education did the client have before Americorps? Was the client employed before Americorps? and more!

Dick

Reply to
Dick Adams

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